MMSU – CBEA ACC 100 – BS ACC 1 Quiz 2

Name: ___________________________________________ Section: __ Date: 3/4/2025 Score: _______

Choose the best answer. Write the letter of your answer at the left side of each number. Use capital letters.

1. Preparation of consolidated FS when a parent-subsidiary relationship exists is an example of the

A. Relevance characteristics C. Comparability characteristic
B. Economic entity assumption D. Neutrality characteristic

2. The continuity (going concern) assumption is the basis for the rule that:
A. The cost of operating assets should be allocated to expense systematically over their useful lives
B. The income statement should not include material gains and losses that are both unusual and
infrequent
C. Treasury stock should not be reported in the balance sheet as an asset
D. The cost of installing a machine should not be included in the recorded cost of the machine, but
rather expensed immediately

3. Under this concept, a profit is earned only if the monetary (or money amount of net assets at the end
of the period exceeds the financial or money) amount of net assets at the beginning of the period,
after excluding any distributions to, and contributions from, owners during the period. It can be
measured in either nominal monetary units or units of constant purchasing power.
A. Concept of capital C. Physical capital maintenance concept
B. Concept of capital maintenance D. Financial capital maintenance concept

4. Effective communication makes information more useful. Effective communication requires all of the
following except:
A. Using standardized description rather than entity-specific information.
B. Focusing on presentation and disclosure objectives and principles rather than focusing on rules.
C. Classifying information in a manner that groups similar items and separates dissimilar items.
D. Aggregation information in such a way that is not obscured either by unnecessary detail or by
excessive aggregation.

5. Recognizing a financial statement element requires measuring it in monetary terms. Which of the
following statements is incorrect regarding measurement?
A. Measuring a financial statement element often requires estimation.
B. Measurement uncertainty will always cause the non-recognition of a financial statement element.
C. The Conceptual Framework broadly classifies the measurement bases used in financial reporting
into two, namely, historical cost and current value.
D. The Conceptual Framework only describes measurement bases used in financial reporting but does
not specify how a particular financial statement element should be measured – this is addressed by
the standards.

6. Obligations to transfer an economic resource include all, except:

A. Obligation to pay cash
B. Obligation to deliver goods
C. Obligation to provide services
D. Obligation to transfer an economic resource even if a specified future event does not occur

7. Which is not within the new definition of an asset?

A. An asset is a present economic resource.
B. Future economic benefit is expected to flow to the entity.
C. The economic resource is a right that has a potential to produce economic benefit.
D. The economic resource is controlled by the entity as a result of past event.
8. Under the New Conceptual Framework, are the following considered as the underlying assumption
under the Framework?
A B C D
 Periodicity Assumption Yes No Yes No
 Accrual Basis of Accounting No Yes Yes No
 Monetary Unit Assumption Yes Yes Yes No

9. Which of the following represents a liability?

A. The obligation to pay for goods that an entity expects to order from suppliers next year.
B. The obligation to provide goods that customers have ordered and paid during the current year.
C. The obligation to pay interest on a five-year note payable that was issued the last day of the
current year.
D. The obligation to distribute an entity’s own shares next year as a result of a stock dividend declared
near the end of the current year.

10. If the financial statements are prepared to include two subsidiaries only without the parent, the
financial statements would be referred to as
A. Consolidated financial statements C. Subsidiaries financial statements
B. Unconsolidated financial statements D. Combined financial statements

11. Which of the following will most likely cause the non-recognition of an asset or a liability?
A. The probability of an inflow (outflow) of future economic benefits from the asset (liability) is low.
B. There is a measurement uncertainty regarding the asset or liability.
C. Recognizing the asset or liability would not provide relevant and faithfully represented information.
D. It is uncertain whether the asset or liability exists.

12. Control is a necessary element of an asset. Control means

A. that the entity can ensure that the resource will produce economic benefits in all circumstances.
B. the entity has the exclusive right over the entire economic resource, and not only a portion of it.
C. a legally enforceable right conferred to the entity by a law or other operation of law.
D. the entity has the exclusive right over the benefits of an asset, including the ability to prevent
others from accessing those benefits.

13. It means that net income occurs only after the capital used from the beginning of the period is
maintained.
A. Capital maintenance approach C. Return on capital
B. Transaction approach D. Return of capital

14. Arise in the course of the ordinary regular activities and is referred to by variety of different names
including sales, fees, interest, dividends, royalties and rent.
A. Income B. Revenue C. Gain D. Profit

15. Which of the following statements that relate to the recognition and measurement of items in the
financial statements is not true?
A. The measurement bases include historical cost and current value.
B. Fulfillment value is the absolute amount of cash expected for the payment of liability.
C. Current value includes fair value, value in use, fulfillment value and current cost.
D. Recognition is the process of including in the financial statements an item that meets the definition
of an asset, liability, equity, income and expense.

16. Which capital concept requires the use of current cost basis of accounting?
A. Financial capital concept C. Both financial and physical capital concepts
B. Physical capital concept D. Neither financial and physical capital concepts
17. The economic entity assumption
A. Requires periodic income measurement
B. Is applicable to unincorporated businesses
C. Recognized the legal aspects of business entities
D. Is applicable to all forms of business organizations

18. Which of the following statements that pertain to the underlying assumptions is true?
A. Inflation is ignored in accounting due to accounting period assumption.
B. The term going concern means the ability to continue in operation for the foreseeable future.
C. The economic entity assumption is applicable only to corporate form of business organization.
D. When a parent and subsidiary relationship exists, consolidated financial statements are prepared in
recognition of legal entity.

19. The transaction approach to determining income is a concept in which

A. Income is measured as the amount that an equity could consume during a period and be as well off
at the end of that period as it was at the beginning.
B. Market values adjusted for the effects of inflation or deflation are used to calculate income.
C. The financial statement effects of business events are classified as revenues, gains, expenses, and
losses, which are used to measure and define income.
D. Income equals the change in market value of the firm's outstanding common stock for the period.

20. Which statement is not true about derecognition?

A. Derecognition is the removal of a recognized asset or liability from the statement of financial
position.
B. Derecognition is the removal of a recognized income or expense from the income statement.
C. Derecognition for an asset normally occurs when the entity loses control of the recognized asset.
D. Derecognition for a liability normally occurs when the entity no longer has a present obligation for
the recognized liability.

21. Which of the following is not an implication of the going concern assumption?
A. Amortizing research and development costs over several periods is justifiable and appropriate.
B. The current and noncurrent classification of assets and liabilities is justifiable and significant.
C. Depreciation and amortization policies are justifiable and appropriate.
D. The historical cost principle is credible.

22. Under the Revised Conceptual Framework, what is the recognition principle?
A. It is probable that any future economic benefit associated with the item will flow to or form the
entity.
B. The item has a cost or value that can be measured with reliability.
C. It is probable that any future economic benefit will flow to or from the entity and the element can
be measured reliably.
D. Only items that meet the definition of an asset, liability, equity, income and expense are
recognized.

23. What is the new definition of liability under the Revised Conceptual Framework?
A. An obligation that the entity has practical ability to avoid.
B. A present obligation of the entity arising from present event.
C. A present obligation of the entity to transfer an economic resource as a result of past event.
D. A present obligation of the entity arising from past event the settlement of which is expected to
result in an inflow of economic benefit.

24. The assumption that an entity will not be sold or liquidated in the near future is known as
A. Economic entity assumption C. Time period assumption
B. Monetary unit assumption D. Going concern assumption
25. Which statement is not true about a reporting entity?
A. A reporting entity is an entity that is required or chooses to prepare financial statements.
B. A reporting entity can be a single entity or a portion of that entity or can comprise more than one
entity.
C. A reporting entity is necessarily a legal entity.
D. A reporting entity may be a corporation, partnership or proprietorship.

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